A coupon rate is a fixed interest rate attached to a bond that determines the amount of interest paid to the bondholder. The coupon payment, calculated as a percentage of the bond’s face value, is typically made semi-annually until the bond matures.
Calculating the coupon rate is essential as it helps determine the return on investment for bondholders and influences the bond’s price and demand. Historically, coupon rates have been impacted by factors like interest rates set by central banks and the creditworthiness of the bond issuer.